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April 18, 2012

For Wealthy, Cars Can Bring the Fun Back to Investing

Where are people storing their wealth these days? Given the tumultuous market for alternative investments and low bond yields since the start of the financial crisis, any place where they perceive it to be lower risk and they can be assured of a return on their investment. That means the wealthy continue to invest in art, jewelry, antiques and other collectibles.

We do not offer investment advice at Chubb (though some experts do). But as an insurance provider for those with valuable collections, we pay attention to trends in the marketplace.

One asset class that is often overlooked is collectible cars.

The wealthy invest in hard assets like the “classics” for a number of reasons. First, classic cars often appreciate in value, and when they depreciate, it's not by much. Second, there is a thriving secondary market in the form of live auctions and online markets, which ensures market liquidity. Next, like art, jewelry and wine, collector cars are easily insured, unlike most soft investments. Finally, and perhaps most important of all, you can drive them, which is fun—and frankly, after the last few years, investing could use a little fun.

Total sales in 2011 were 15% higher because more cars were sold, which, in and of itself, is a reflection of market strength—more supply became available in response to increasing demand. In each category above, the numbers have risen, except for the average price per car, which dropped slightly from 2010 to 2011.

Even with the drop in average price, car collectors continue to pay record prices for the best-of-the-best. For example, at the 2011 Pebble Beach auction in August, we saw two new records set. The first was for the highest price ever paid for a car sold at auction—a 1957 Ferrari 250 Testa Rossa Prototype for $16.39 million, below:

At the same auction in August 2011, the second record set was for the highest price ever paid for an American car sold at auction—the Whittell Coupe, a custom bodied 1931 Duesenberg Model J (see below) that sold for $10.34 million.

Both sales were handled by Gooding & Company, which has set an additional 24 world records already in 2012, including those for a 1973 Porsche 917/30 Can-Am Spyder that sold for $4.4 million (a world auction record for a Porsche), and a 1955 Mercedes-Benz 300 SL Alloy Gullwing that sold for $4.62 million (a world auction record for an Alloy Gullwing and 300 SL).

Many collector car analysts I’ve spoken to contend that while there is strength across all segments of the hobby, it is the investment-grade models with the right provenance that are bringing record prices. Knowing what to purchase at any given time remains critical. Having real-time data at your fingertips can help, which is why Chubb has created the Classic Car Guide mobile app for iPhone, iPad and Android based phones.

Like I said, Chubb does not offer investment advice, but I will offer this tip: If you have a passion for collector cars and start building your own collection, please drive them, because they are too fun not to drive.

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